The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.One of the best explanations of the current credit crisis. It shows how ordinary homeowners defaulting aren’t solely to blame and the problems are systemic tracing back to the lowering of the Fed rate and repeal of the Glass-Steagall Act in 1999 that allowed creation of mortgage-backed securities. But I’m no economist and reasons are far more complex that I could even begin to explain here. The sociological impacts on the neighborhoods however are only beginning to show with abandoned homes that are only making the problem worse.

“Try this experiment. Go knock on someone’s door in West Oakland, Watts or Newark and say: ‘We gotta really big problem!’ They say: ‘We do? We do?’ ‘Yeah, we gotta really big problem!’ ‘We do? We do?’ ‘Yeah, we gotta save the polar bears! You may not make it out of this neighborhood alive, but we gotta save the polar bears!’ ”

Thomas Friedman writes about including the minority low-income populations in the ‘green movement’. Imposing conservation and sustainability on people usually doesn’t work. Rather you have to make the case that it is beneficial to them in the long run. Only then will they listen. Just like the corporations listened when it affected not only their image but also their bottomline.

We’ve all heard of the construction boom that is going on in Dubai so I thought it wise to revisit the Dubai property market through a paid review of LatticeWerks. You have seen the glamorous symbols of Dubai like the arching sail-like Burj-Al Arab Luxury Hotel and the view of the Giant Palm Islands but did you know that a majority of the construction cranes in the world are found in Dubai? That in itself should tell you that it is not over yet and the future of Dubai skyline is just beginning to form.

LatticeWerks, a property investment firm in Dubai gives us an overview of why you should invest in Dubai. I just hope they would increase the font a little and emphasize the headlines more since it makes it extremely difficult to read and you don’t want to lose out on potential investors if they can’t read your website, right? And of course, everyone loves photos of fancy buildings and cityscape. Perspectives of upcoming projects and a view of the future doesn’t hurt either. Convincing investors in overseas property can be much more tricky than showing them palm trees lined oceanfront property in say, Florida.

That brings me to another point -are customers convinced of investment opportunities by simply browsing through the websites of investment companies? Probably in hot property markets like Dubai, nothing can go wrong (or will it?) but are customers still gullible to read a rosy picture description of a faraway land and willingly hand over their hard earned money or will they demand more information even if it is on the Web? Probably I’m looking at it the wrong way. Probably such websites merely open the Pandora’s box and hook in the consumer making him initiate an enquiry following which the sales experts take over.

What do you think?

However one common strand has been to throw money at solving poverty, the logic being isn’t poverty defined as the lack of monetary resources so more of money would be good, right? On the contrary such methods have not only failed to make a dent in the larger issue of poverty but have often compounded the problem. Neoclassical economists will believe in letting the people choose what they want by giving them financial means to do so and if they fail to alleviate their problem, central planners will say, see we told you they cannot make the best decisions for themselves but we have to make it for them. Thus goes the struggle in trying to resolve poverty and only more money gets thrown at a problem that isn’t even close to being solved. The poverty issue has once again found its place in the limelight thanks to John Edward’s Two Americas presidential campaign.

However contrary to the popular opinion, poverty is more of a sociological problem than an economic or political one. But approaches to solve it from a social perspective by first trying to understand its underlying causes have often found lacking. I don’t propose to offer a silver bullet solution for poverty alleviation in this article (if I had one, wouldn’t I be running for President?) but rather shed some light on recent attempts especially at MIT and other top universities in trying to understand the problem and work toward finding a solution.

The Abdul Latif Jameel Poverty Action Lab at the Massachusetts Institute of Technology (MIT) is using randomized trials to study various poverty-related issues [via Live Mint]. Economists such as Abhijit Banerjee and Esther Duflo, as well as Sendhil Mullainathan of Harvard are trying to pinpoint agents of change that have the maximum impact in alleviating poverty. Two such experiments offer great insight on the role of money toward alleviating poverty:

Pratham, an NGO hires young women living in local communities to provide remedial education to children who have moved to Class II and III without acquiring the basic literacy and numerical skills that they should have in Class I. The Poverty Lab research showed that the remedial education provided by these young women (called balsakhis) helped improve exam scores. A cost-benefit analysis showed that it was between 4.5 and 6.7 times more cost-effective than hiring a new teacher for those kids.

A similar piece of research in Vadodara showed that computer-assisted learning could provide similar improvements in marks, but that it was far less cost-effective than the balsakhi programme. Such randomized trials give us clear signs that balsakhis are more effective that either employing more teachers or giving computers to government schools. God is in such details.

Harnessing local resources that lead to significant improvements signify employing sociological tools instead of economical ones. These tools imply the ever-important role of the community and the inherent need for people to better their lives. Throwing money from a condescending vantage point may lead to temporary relief but it doesn’t address the core problems leading to possible resurgence of poverty at a later time. In the words of William Easterly [also from Live Mint]:

“Historically, poverty has never been ended by central planners. It is only ended by searchers, both economic and political, who explore solutions by trial and error… A Planner thinks he already knows the answers: he thinks of poverty as a technical engineering problem that his answers will solve. A Searcher admits he doesn’t know the answers in advance: he believes that poverty is a complicated tangle of political, social, historical, institutional and technological factors.”

I’m sure by planner he means an central economic planner in the tradition of socialist or communist ideologies. But Easterly highlights a position that rightly depicts planning as a sociological instrument as compared to a physical or even economic one. Getting off our high horses and instead getting our hands dirty in first understanding the social causes of poverty might give us a better insight to its possible solutions. We may not have a perfect generic solution that solves it worldwide but understanding that it is a ‘complicated tangle’ of various factors is the first step.

John Heckman, a critic of the above-mentioned randomized trials on basis of extent of causality instead contends that throwing money at poverty problems might succeed only if it is thrown in the right direction. He argues for government intervention at the early stages of childhood when offering financial assistance can have a maximum effect [by expanding opportunties which again is a social construct, I believe]. Heckman says:

“If people have limited options, low skills and an inability to function in the larger economy, you can give them money, but if you don’t give them the skills, if you don’t somehow improve their access to those institutions that make a society productive, then all you’re going to do is more of what we did in the 1960s with the War on Poverty — namely, it will eradicate poverty in the sense that it will give people money, but it won’t lead to sustained growth of income, and the kids of these people will probably also enter poverty.”

Although in a roundabout manner, Heckman also emphasizes on the fact of using money as a tool for expanding community or improving social networks. Finding a balance between traditional conservative thought of personal responsibility and liberal thought of direct assistance is the idea behind empowering of communities and hence individuals. Therein might just lie the key to making a dent in poverty.

Another use of this railway would be to serve as alternative for evacuation in the hurricane-vulnerable region of Galveston and it would cost far less than light rail or even expanding the Gulf Freeway. “The passenger line would make four to six stops before arriving at the Galveston Railroad Museum, housed in the former Galveston passenger terminal. Debarking passengers would exit through the museum to board a trolly, electric bus, horse-drawn carriage or cruiseship shuttle” [Houston Chronicle]. The horse-drawn carriages apart, the stops can be effective transportation hubs and point for renewed development of businesses and residences.

I am hopeful that this seemingly feasible solution would appeal to all Houstonians especially those who are enmeshed in everyday rush hour.

Technorati Tags: railroad, Houston, Galveston, commuter, train, public transit, evacuation

A Madison Avenue antiques dealer is suing a group of unidentified homeless people for $1 million, saying that the group has taken up residence outside his posh Upper East Side business, using the sidewalk in front of the shop as a urinal, spittoon and occasional dressing room [source].

Now the problem of homelessness in the United States is something that Americans wish that would simply disappear if they ignore it long enough. Hardly has anyone tried to understand the underlying cause of homelessness. Some term it as a urban truth that we have to live with while others look at it as nuisance that we could zone out of our visibility cone. While not being an expert on homelessness, I understand that in spite of millions of research dollars thrown at it, authorities haven’t been able to agree on a politically and economically feasible solution.

Why not give all homeless a free home? Of course, the United States so busy in resettling whole countries in the Middle East can afford it. But then that might logically lead to free-ridership and creating dependencies in the long run and definitely goes against the American ethos of work hard and you’ll succeed. At the same time, the core cause of homelessness is mental illness. I have seen numerous incidents of previously well-to-do individuals like lawyers, doctors, or businessmen being forced into homelessness due to chronic mental illness and lack of family support. Strangely a count of the homeless in the United States put the figure at an astounding low 744,000. But addressing causes of homelessness or seeking a solution may be beyond the scope of this post and let me return to the topic of discussion brought up by the article cited above.

“My concern is the health of the man,” Mr. Kemp said by phone from his store’s East 10th Street location today. “Sometimes he’s out there in blizzard conditions, and you and I pay taxes in New York City and some of that is to maintain decent shelters. And he should take advantage of
that.”While Mr. Kemp referred to one of the homeless men as a “nice guy,” he said it is time for them to part ways. “It’s nothing against him,” Mr. Kemp said. “I want him to be safe and not to be an obstruction to us.”

If you notice the tone in this paragraph, it goes beyond the usual get-out-of-my-way apathetic attitude that you would normally associate with the landowner. Mr. Kemp may have developed a personal relationship with the homeless man after seeing him around for more than 2 years and although understands the plight of the afflicted man, he is now taking a more practical stand by wishing more for the man. But at the same time, shifting the responsibility onto the city seems like a likely and easy solution.

Has the city or Mr. Kemp tried to understand why does the homeless man not want to go to a homeless shelter? Definitely a warm place however seedy might seem like a better option than living out in a New York winter. Probably the answer might be similar to that of a slum dweller who rather live in the squalor of a drain in Bandra than relocate to Mira Road. The homeless man might be thinking in economic terms as well – why move to a distant homeless shelter and spend time and money commuting when you can in fact live right on Madison Ave.and hope for better alms. After all, he is occupying public space. Mr.Kemp’s ownership ends at the threshold of his store.

But at the same time, a case can be made to the city on the grounds of harm to his property value/business due to presence of the homeless. The city may very well be interested in addressing the issue if it leads to loss of revenue through sales tax. Unfortunately apart for the humanitarian argument, the homeless may have little support.

The larger question here is, where should we move the homeless man to? Should he become someone else’s problem or should we just zone them out of sight? However ignoring a social problem has never solved any.

[article hat tip: Bongo Pondit]

Technorati Tags: homeless, urbanscape, New York, housing, Madison Ave.

In Queens, the median income among black households, nearing $52,000 a year, has surpassed that of whites in 2005, an analysis of new census data shows. No other county in the country with a population over 65,000 can make that claim.

New York Times reports on this unique country in the United States where the average income of black households exceeds that of their white neighbors. But it should be noted that most of the black households are immigrants from West Indies. As the article says, Queens isn’t the only country but in fact, Mount Vernon in Westchester, Pembroke Pines, Fla.; Brockton, Mass.; and Rialto, Calif. also show similar tendencies however none are as large as Queens.

[tag]Queens, racial inequality, median income, demographics, census, black households, opportunity[/tags]

Update: Fast forward to 2007, “Moscow is the world’s most expensive city for the second year in a row, thanks to an appreciating ruble and rising housing costs, a new survey reports” [source]. London is now placed at #2 and Tokyo is at #4. To give you an example of Moscow’s cost of living:

“In Moscow, a luxury two-bedroom apartment will cost an expat $4,000 a month; a CD rings up at $24.83; one copy of an international daily newspaper is $6.30; and a fast-food hamburger meal totals $4.80.”

This ranking is based on a survey conducted by Mercer Human Resource Consulting that ranks 143 cities around the world, measuring the comparative cost of more than 200 areas such as housing, transportation and food.

Technorati Tags: city, living, price, urban

There are other options to own these ‘luxury’ items – through rent-to-own stores at least for furniture. For other products, you have the lease option. The Brookings Institution recently released a report [PDF link] that blamed the rent-to-own stores for ‘preying upon its customers’. The damning evidence [via Buffalo News] was in form of an ancedote that told the story of Nicole Hennegan who leased a used 36″ color television from a rent-to-own store after paying $80 monthly payments. After she missed her fourth payment, the television was reposssed but the underlying implication of this story was that if she had continued paying her monthly dues, she would have ultimately paid $900 for an otherwise much cheaper television set. Those who blame the stores for such predatory pricing are missing an important economics lesson – Ms. Hennegan was perfectly capable of not opting to rent a 36″ television which considering her pecuniary condition was a luxury item anyway.

Thomas Woods, in his story, Do Rent-to-Own Stores Hurt the Poor rightly points to the oft-cited assumption that poor people are unable to make sound economic decisions [partly also the reason for food stamps when simply giving cash would maximize their marginal utility]. He also lists several reasons that advocates for the poor offer as reasons to regulate rent-to-own stores:

1. Ms. Hennegan may not have had a large electronics store nearby.
2. She may also not have had a car, or any friends who had a car, or any friends who had a car who knew how to get to an electronics store.
3. She couldn’t have used public transportation, though it is not exactly clear why not.
4. She couldn’t order the product online, since she lacked Internet access.
5. She knew no one who had Internet access that she could use for ten minutes.
6. She was also unable to go to the public library, where Internet access is available for free. She could not use public transportation to get to the public library; see #3 above.
7. Even if she could have ordered the television online, she couldn’t have purchased the television because she lacks a credit card.
8. You don’t need a credit card to order merchandise from Amazon.com – just a checking account – but she couldn’t order the TV there because, well, she just couldn’t.

But I agree with his underlying argument that these reasons seem to imply the the protagonist in the example above is a helpless victim unable to make smart decisions regarding her own financial health. And any efforts at regulating such stores would be akin to micro-managing social conditions and would also not allow poor people to benefit from enjoying ‘luxuries’ that the smart ones can effectively manage. In the name of social justice, we can offer to increase awareness of such pricing schemes and probably offer financial workshops to help them make sound decisions but completely banning or preventing rent-to-own stores is not the right solution. Probably even if they are aware of the financial downside, they are willing to make a trade-off for short term benefit; something that we cannot deny them.

After all, the Georgia State Lottery program that funds the HOPE scholarship is also accused of taking money from the poor to fund the rich kids education.

Technorati Tags: rent-to-own, economics, decision-making, poverty, urban neighborhood, marginal benefit, lease, rent, ghetto, choice

Compact or dense living in condos or townhomes carry a stigma of being homes for middle and lower income but at the same time, high priced condos in most of the mega-cities cost far more than those single-family homes in the suburbs and the demand for them is no less. Single-family homes received a fillip from the government through incentives like the mortgage interest deduction or through veterans affairs or even as an indirect benefit from the construction of the inter-state system. People could afford home because they received magnanimous exemptions on their mortgages or they could commute easily to distant places thanks to the inter-states; so in fact the free-market isn’t entirely responsible for the inculcation of the American dream. The single-family homes sit on large lots away from the city mostly on cheap lands that are supported on city infrastructure and public subsidies. Fewer developers with the exception of high-growth Florida have chosen to develop subdivision if they were burdened with providing the underlying infrastructure of water, power, and sewage connections to these distant properties.

Density living, on the other hand occupy more people leaving more room for open and green space and significantly reduces dependence on automobiles. Provision of smaller parks for groups of apartments or town homes can easily fulfill the need for open space for children. This will not only further social communication but also encourage sharing of spaces that renders most backyards redundant (because children tend to play in groups in a common area as opposed to on their own in their own backyard). Compact living also makes it possible to walk down to such social spaces such as parks, neighborhood shopping, restaurants, or even hospitals. Retired folks and empty nesters (couples whose children have moved out) are already moving back into downtown to enjoy easier proximity to restaurants, night life, cultural districts, hospitals, and drug stores. They are choosing not to drive if they can help it.

Economically speaking, multifamily housing actually makes housing more affordable as infrastructural resources are shared and cost per unit is lot less than for single-family homes. The huge demand for housing is limited by scarcity of land in the suburbs which can develop only so much but by increasing the supply of land by minimizing the footprint and housing more people per footprint, real estate prices can actually decline. The city planning principle of developing several nodes in New Bombay (Navi Mumbai) has worked well in creating several foci instead of creating distinct zones for residential, commercial, or industrial that all people would have to flock to. Every sector or neighborhood is self-sufficient in its immediate needs and if you seek more, you can always travel to other nodes that have their own special attractions like movie theaters, stadiums, or transport terminals. But you may not need to use these public amenities everyday and hence reduce the daily commute by relying on facilities that your neighborhood provides. This is a proven fact by the traditional mohalla concept in Indian cities and has worked wonderfully over the ages.

Compact living has many other advantages over sprawling development, most of which cannot be packed into this short post. I’ll offer more arguments in the future. But respect for your environment is not a logical choice but in fact a moral and emotional choice, much like other choices you make in life. I wonder why this choice is always subjected to economic or logical conditions.

“The prosperity of a nation is by counting the number of cars on the roads. Therefore there should not be cyclists travelling long distances and traffic should be made homogenous,”

The above priceless quote was uttered by Delhi’s Engineer-in-Chief, R Subramaniam. I am amazed that such a person with absolutely no knowledge of city form and urban economics holds such a high position in the government. Thankfully, he is only responsible for transportation policy in the capital city and not elsewhere. Policy in socialist India was government-driven and if this was the general attitude of all officials in the capital, we all would be forced to “be prosperous by driving more cars”.

Mr. Subramaniam seems to suffer from a case of spurious correlation. He must have seen America and noticed the number of cars on its road and decided that having more cars is the way to develop your country. Unfortunately, in a material-riddled society, his thoughts are shared by many and acquiring a vehicle irrespective of the ability to drive one safely is seen as an indicator of prosperity. In fact, people are buying more cars is only indicative of the choice they are making with their new-found wealth. However, if you look closely, they don’t even have that kind of money but they simply have easier access to car loans that the financial sector is heaping on the consumers. If the people somehow had opted to buy tons of chocolates with the money, it would mean that more chocolates in the country mean a more prosperous nation. So cars are simply a commodity that people buy to indicate their economic condition. Cars thus do not make a country prosperous but prosperous countries sure do have more cars.

Why am I harping so much on this lone bureaucrat’s statement? Simply because, it is one of the reasons that the Urban Development Ministry chose not to impose the condition to allocate space for pedestrians and cyclists for the city of Delhi. It allocated Rs.1650 crores over the next for years to Delhi to build 25 new flyovers and road over bridges. All this money with no express condition to consider the other forms of transportation – bicycles and pedestrians – which incidentally is also the primary form of transport for the lower-income class of people. However, Mumbai was denied this transportation largesse because of the same condition that it exempted Delhi from.

This policy decision is wrong and unfair on multiple counts. First, it unfairly discriminates against the population of the city that doesn’t own cars. Flyovers are primarily meant for car owners so that it can expedite their commute and reduce congestion. Of course, on the flip side, such a policy of building flyovers in fact encourages car ownership and brings more cars on the streets thus negating the advantage of additional road space added by flyovers. More flyovers are built to rectify the problem and the cycle continues. If you want to see a city dominated by flyovers and roads, come down to Houston and see if you would like to live in a ‘prosperous city with lots of cars and flyovers’. Second, the policy discriminates between cities i.e. Delhi and Mumbai by having different standards. Urban transportation policy needs to be coherent and if allocating space for pedestrians and cyclists is a guiding principle, it cannot differ from city unless a city has no cycles or people walking on the street, which is not the case for any Indian city, big or small. Third, environmentally, encouraging a car-centric urban form is disastrous. The prosperous nations that Mr. Subramaniam looks up to have since long suffered from problems of sprawl and inner city dilapidation causing other socio-economic problems. The developed countries have begun to reconsider their position on the role of automobiles in a city. London has already imposed a hefty congestion tax that limits vehicular traffic in the city (government-side policy) and astronomical parking charges make driving into New York City make it economically unviable (market-oriented mechanism). Dense and pedestrian friendly cities not only improve the social fabric of the city but also cause a lesser burden on the environment, at least until a pollution-free mode of transportation is developed.

Let us hope that this policy decision is reconsidered. The worse case scenario would be if Mumbai also was given the luxury of ignoring the transportation needs of more than 90% of its population.

In related news, Lata Mangeshkar is in the news for ‘delaying city infrastructure improvements’. In a later post, I will explain why her actions aren’t wrong.